Joanette, Inc., is considering the purchase of a machine that would cost $610,000 and would last for 7 years, at the end of which, the machine would have a salvage value of $61,000. The machine would reduce labor and other costs by $121,000 per year. Additional working capital of $7,000 would be needed immediately, all of which would be recovered at the end of 7 years. The company requires a minimum pretax return of 11% on all investment projects. (Ignore income taxes.)
Click here to view Exhibit 12B-1 and Exhibit 12B-2 to determine the appropriate discount factor(s) using the tables provided.
Required:
Determine the net present value of the project. (Negative amount should be indicated by a minus sign. Round your intermediate calculations and final answer to the nearest whole dollar amount.)
EXHIBIT 12B-1 Present Value of $1; 1+r Periods 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% 21% 22% 23% 24% 25% 1 0.962 0.952 0.943 0.935 0926 0.917 0.909 0.901 0.893 0885 0.877 0870 0.862 0.855 0847 0.840 0.833 0.826 0.820 0.813 0.806 0.800 2 0.925 0.907 0.890 0873 0.857 0.842 0.826 0.812 0797 0.783 0.769 0756 0.743 0.731 0.718 0.706 0.694 0.683 0672 0.661 0.650 0640 3 0.8 4 0.855 0.823 0.792 0.763 0.735 0.708 5 0822 0.784 0747 0.713 0.681 0.650 6 0.790 0.746 0.705 0.666 0.630 0.596 0.564 0.535 0.507 0.480 0456 0.432 0.410 0.390 0.370 0.352 0.335 0.319 0.303 0.289 0.275 0.262 7 0760 0711 0665 0623 0.583 0.547 0.513 0.482 0452 0.425 0400 0.376 0.354 0.333 0.314 0.296 0279 0.263 0.249 0.235 0222 0.210 8 0.731 0677 0627 0.582 0.540 0.502 0.467 0.434 0.404 0.376 0.351 0.327 0.305 0285 0.266 0249 0.233 0.218 0.204 0191 0.179 0.168 9 0703 0.645 0.592 0.544 0.500 0.460 0.424 0.391 0.361 0.333 0.308 0.284 0.263 0.243 0.225 0.209 0.194 0.180 0167 0155 0144 0.134 10 0.676 0.614 0.558 0.508 0.463 0.422 0.386 0.352 0.322 0.295 0.270 0.247 0.227 0.208 0.191 0.176 0162 0149 0.137 0.126 0116 0.107 11 0.650 0.585 0.527 0.475 0.429 0.388 0.350 0.317 0.287 0.261 0.237 0.215 0.195 0.178 0.162 0148 0.135 0.123 0.112 0103 0.094 0.086 12 0625 0.557 0.497 0.444 0.397 0.356 0.319 0.286 0.257 0.231 0.208 0.187 0168 0.152 0.137 0.124 0112 0102 0.092 0.083 0.076 0.069 13 0.601 0.530 0469 0.415 0.368 0.326 0.290 0.258 0.229 0.204 0.182 0.163 0.145 0.130 0.116 0104 0.093 0084 0.075 0068 0061 0.055 14 0.577 0.505 0.4 15 0.555 0.481 0.4 16 0.534 0.458 0.394 0.339 0292 0.252 0.218 0188 0163 0141 0123 0.107 0093 0081 0071 0062 0054 0047 0042 0036 0032 0028 17 0.513 0436 0.371 0.317 0.270 0.231 0198 0.170 0.146 0125 0.108 0.093 0.080 0069 0.060 0052 0.045 0039 0.034 0.030 0026 0023 18 0.494 0.416 0.350 0.296 0.250 0.212 0.180 0.153 0.130 0111 0.095 0.081 0.069 0.059 0.051 0.044 0.038 0032 0.028 0.024 0.021 0.018 19 0475 0.396 0.331 0.277 0.232 0194 0164 0.138 0116 0.098 0083 0.070 0.060 0.051 0.043 0.037 0.031 0027 0023 0.020 0.017 0.014 20 0456 0.377 0.312 0.258 0.215 0178 0.149 0.124 0104 0087 0073 0061 0051 0043 0037 0031 0026 0022 0.019 0.016 0014 0,012 21 0439 0.359 0.294 0.242 0.199 0164 0135 0.112 0.093 0077 0064 0.053 0.044 0.037 0031 0.026 0022 0018 0.015 0.013 0.011 0.009 22 0.422 0.342 0.278 0.226 0184 0150 0123 0101 0083 0068 0056 0046 0038 0032 0026 0022 0018 0015 0013 0011 0009 0.007 23 0.406 0.326 0262 0.211 0.170 0138 0.112 0091 0074 0060 0049 0040 0033 0027 0022 0018 0015 0012 0010 0.009 0007 0.006 0.864 0.840 0.816 0.794 0.772 0751 0.731 0.712 0.6 0.675 0.658 0.641 0.6 0.609 0.5 0.579 0.564 0.5 0.537 0.5 0.4 0.6 0.613 0.592 0.572 0.5 0.534 0 0499 0.4 0.467 0.4 0.386 0.370 0.3 0.4 0.341 0.328 0.4 0.5 0.567 0.543 0.519 0.4 0.476 0456 04 0.4 0.388 0.340 0.299 0263 0.2 0.362 0.315 0.275 0239 0.209 0183 0.160 0140 0.123 0108 0.095 0084 0074 0065 00 0.205 0.1 0160 0.1 0.1 0.1 0099 0088 0078 0069 0062 0055 0049 0044 0.051 0.045 0040 0035 0.390 0.310 0.247 0197 0.158 0.1 0.1 0.082 0.066 0.053 0.043 0035 0028 0023 0.019 0015 0.013 0.010 0.008 0.007 0.006 0.005 25 0.375 0.295 0.233 0184 0146 0.116 0.092 0.074 0.059 0.047 0.038 0.030 0024 0.020 0.016 0.013 0.010 0.009 0.007 0.006 0.005 0.004 26 0.361 0.281 0.220 0.172 0135 0.106 0.084 0.066 0.053 0.042 0.033 0.026 0.021 0.017 0.014 0.011 0.009 0.007 0.006 0.005 0.004 0.003 27 0.347 0.268 0.207 0161 0125 0.098 0.076 0.060 0.047 0.037 0.029 0.02 28 0.333 0.255 0196 0150 0116 0.090 0.069 0054 0042 0.033 0026 0020 0016 0.012 0.010 0008 0.006 0005 0004 0003 0002 0.002 29 0.321 0.243 0185 0141 0107 0082 0063 0048 0037 0029 0022 0017 0014 0011 0008 0006 0005 0004 0003 0002 0002 0002 30 0.308 0.231 0174 0131 0.099 0.075 0057 0.044 0033 0026 0020 0.015 0.012 0.009 0.007 0.005 0.004 0.003 0.003 0.002 0002 0001 40 0.208 0142 0097 0067 0046 0032 0022 0015 0011 0008 0005 0004 0003 0002 0001 0001 0001 0000 0000 0000 0000 0000 0.018 0.014 0.011 0.009 0.007 0006 0.005 0.004 0.003 0.002 EXHIBIT 12B-2 Present Value of an Annuity of $1 in Arrears; 1 - - Periods 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% 21% 22% 23% 24% 25% 1 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0833 0.826 0.820 0.813 0.806 0.800 21.886 1859 1833 1808 1783 1759 1736 1.713 1.690 1.668 1647 1626 1605 1585 1566 1547 1528 1509 1.492 1.474 1.457 1440 3 2.775 2723 2.673 2.624 2.577 2.531 2487 2.444 2.402 2.361 2.322 2.283 2.246 2.210 2.174 2140 2.106 2.074 2.042 2.011 1.981 1952 4 3.630 3.546 3.465 3.387 3.312 3.240 3.170 3.102 3.037 2.974 2.914 2.855 2.798 2.743 2.690 2.639 2.589 2.540 2.494 2.448 2.404 2.362 5 4.452 4.329 4.212 4.100 3.993 3.890 3.791 3696 3605 3.517 3.433 3.352 3.274 3199 3127 3058 2.991 2.926 2.864 2.803 2.745 2.689 6 5.242 5.076 4.917 4.767 4.623 4.486 4.355 4.231 4.111 3.998 3.889 3.784 3.685 3.589 3.498 3.410 3.326 3.245 3167 3.092 3.020 2.951 7 6.002 5.786 5.582 5.389 5.206 5.033 4.868 4.712 4.564 4.423 4.288 4.160 4.039 3.922 3.812 3.706 3.605 3.508 3.416 3.327 3.242 3.161 8 6.733 6.463 6.210 5.971 5747 5.535 5.335 5146 4.968 4799 4639 4.487 4.344 4.207 4.078 3954 3.837 3726 3619 3.518 3421 3.329 9 7435 7108 6.802 6.515 6.247 5.995 5.759 5.537 5.328 5132 4.946 4.772 4607 4.451 4.303 4.163 4.031 3.905 3.786 3673 3.566 3.463 10 8111 7722 7.360 7024 6.710 6.418 6.145 5.889 5.650 5.426 5.216 5.019 4.833 4659 4494 4.339 4.192 4.054 3.923 3799 3.682 3.571 11 8.760 8.306 7887 7499 7139 6.805 6.495 6.207 5938 5.687 5453 5.234 5.029 4.836 4656 4486 4.327 4177 4.035 3.902 3776 3656 12 9.385 8.863 8.384 7943 7536 7161 6814 6492 6194 5.918 5.660 5.421 5197 4.988 4.793 4.611 4.439 4278 4127 3.985 3.851 3.725 13 9.986 9.394 8853 8.358 7904 7487 7103 6.750 6.424 6.122 5.842 5.583 5.342 5.118 4.910 4.715 4.533 4.362 4.203 4.053 3.912 3.780 14 10.563 9.899 9.295 8745 8.244 7.786 7367 6.982 6.628 6.302 6.002 5.724 5.468 5.229 5.008 4.802 4.611 4.432 4.265 4.108 3.962 3.824 15 11.118 10.380 9.712 9.108 8.559 8.061 7606 7191 6.811 6.462 6.142 5.847 5.575 5.324 5.092 4.876 4.675 4.489 4.315 4.153 4.001 3.859 16 11.652 10.838 10.106 9.447 8.851 8.313 7824 7.379 6.974 6.604 6.265 5.954 5.668 5.405 5.162 4.938 4.730 4.536 4357 4.189 4.033 3.887 17 12.166 11.274 10.477 9.763 9.122 8.544 8.022 7549 7120 6.729 6.373 6.047 5.749 5.475 5.222 4.990 4.775 4.576 4.391 4.219 4.059 3.910 18 12.659 11.690 10.828 10.059 9.372 8756 8.201 7702 7250 6.840 6.467 6128 5.818 5.534 5.273 5.033 4812 4.608 4.419 4.243 4.080 3.928 19 13.134 12.085 11.158 10.336 9604 8.950 8.365 7.839 7.366 6.938 6.550 6.198 5.877 5.584 5.316 5.070 4.843 4635 4.442 4.263 4.097 3.942 20 13.590 12.462 11.470 10.594 9.818 9129 8.514 7963 7469 7025 6623 6259 5.929 5628 5.353 5101 4870 4657 4.460 4.279 4.110 3.954 21 14.029 12.821 11764 10.836 10.017 9.292 8.649 8.075 7562 7102 6.687 6.312 5.973 5.665 5.384 5.127 4.891 4.675 4.476 4.292 4.121 3.963 22 14.451 13.163 12.042 11.061 10.201 9.442 8.772 8176 7645 7170 6.743 6.359 6.011 5.696 5.410 5149 4909 4690 4.488 4.302 4.130 3.970 23 14.857 13.489 12.303 11.272 10.371 9.580 8.883 8.266 7718 7230 6792 6.399 6044 5723 5.432 5167 4.925 4.703 4.499 4.311 4137 3.976 24 15.247 13.799 12.550 11.469 10.529 9.707 8.985 8.348 7784 7.283 6.835 6.434 6.073 5.746 5.451 5182 4.937 4713 4.507 4.318 4.143 3.981 25 15.622 14.094 12.783 11.654 10.675 9.823 9.077 8422 7.843 7.330 6.873 6.464 6.097 5.766 5.467 5.195 4948 4.721 4.514 4.323 4.147 3.985 26 15.983 14.375 13.003 11.826 10.810 9.929 9161 8488 7896 7.372 6906 6.491 6118 5783 5480 5.206 4.956 4728 4.520 4.328 4151 3.988 27 16.330 14.643 13.211 11.987 10.935 10.027 9.237 8548 7.943 7409 6.935 6.514 6.136 5.798 5.492 5.215 4.964 4.734 4.524 4.332 4.154 3.990 28 16.663 14.898 13.406 12.137 11.051 10.116 9.307 8.602 7984 7441 6.961 6.534 6.152 5.810 5.502 5.223 4.970 4.739 4.528 4.335 4.157 3.992 29 16.984 15.141 13.591 12.278 11.158 10.198 9.370 8.650 8.022 7.470 6.983 6.551 6.166 5.820 5.510 5.229 4.975 4.743 4.531 4.337 4.159 3.994 30 17292 15.372 13.765 12.409 11.258 10.274 9.4278.694 8.055 7.496 7003 6.566 6.177 5.829 5.517 5.235 4.979 4.746 4.534 4.339 4.160 3.995 40 19.793 17159 15.046 13.332 11.925 10.757 9.779 8.951 8.244 7634 7105 6.642 6.233 5.871 5.548 5.258 4.997 4.760 4.544 4.347 4.166 3.999
